Ivanhoe posts strong third-quarter

Ivanhoe Mines (IVN-T, IVN-N) third-quarter results show strong revenue growth and a cut into losses, but varying degrees of uncertainty loom around aspects of its operations in Mongolia and Myanmar.

While Oyu Tolgoi copper-gold project in Mongolia remains Ivanhoe’s flagship project commercial production is slated to begin in mid-2008 with an anticipated average annual production of more than one billion pounds of copper and 330,000 oz. of gold for at least 35 years the source of more financing and a stability agreement with the Mongolian government are yet to be resolved.

In the press release announcing third-quarter results, Ivanhoe says the company’s existing cash resources of roughly $150 million combined with proceeds from the sale of its Savage River mine in Australia the mine was sold to a subsidiary of London-based Stemcor Holdings in February of this year for US$21.5 million and will continue to pay Ivanhoe proceeds from the sale of its iron-ore pellets are sufficient to fund planned activities at Oyu Tolgoi through the second quarter of 2006.

To fund activities beyond that time, UBS analyst Tony Lesiak says Ivanhoe could either find a partner or divest itself of some of its coal or gold business.

As for the much delayed signing of the stability agreement a proposed agreement with the Mongolian government that would give long-term clarity on, among other things, land, tax, energy supply and water issues management is optimistic about a completion of the deal. But the release did caution that, “there can be no assurance that a special stability agreement containing all of the terms sought by the company can be obtained in the foreseeable future.”

At its Monywa S&K copper mine in Myanmar, production is being held back as Ivanhoe waits for the necessary government approval to bring more hauling trucks on to the site. The additional hauling capacity is needed to maintain copper production at current levels as copper grades and copper recoveries are in decline.

With the political situation in Myanmar getting more opaque by the day, the duration of the delay is uncertain.

On Nov. 6 the government began moving its government offices some 320-km north of the current capital of Rangoon, to a secret fortified location near Pyinmana. Reasons for the move are hard to come by, but both astrology Myanmar has a history of basing significant political decisions on the alignment of the stars and the fear of an attack from the United States, were cited by a recent New York Times articles as possible reasons for the move.

The Myanmar government issued a release saying in case of emergency it can be contacted by fax, but did not offer a new fax number.

Even with such political murkiness, production at Monywa which Ivanhoe is a 50% stakeholder in was improved to 8,497 tonnes of copper, an 8% increase from the same period last year. Correspondingly profits rose to $9.5 million compared to $5.7 million for the third-quarter in 2004.

Other third-quarter positives for Myanmar operations were the paying off of debt and a balance sheet with $34.6 million in cash.

Yet despite Monywa’s contribution to the balance sheet, analysts say the market has not factored the Myanmar operation into its share price in a significant way. As such analysts don’t expect political turmoil in the region to exert much downward pressure on the stock.

Ivanhoe’s shares were up 3% this week in Toronto, to close at $9 on Nov. 11.

In its press release Ivanhoe credited increased cash-flow from Monywa and a stronger copper price the average price of copper for the third quarter was $1.80 a pound compared to an average price of $1.27 a pound for the same time last year as factors helping it to post a 57% increase in revenue over the same period last year. Third-quarter revenue was $15.4 million compared with $9.8 million the third-quarter of 2004.

Ivanhoe’s operating profit for the first nine months of 2005 was $29.1 million, up 62% from $18 million in the first nine months of 2004.

Losses for the quarter came in at $16.4 million or 5 cents a share compared to a net loss of $25.6 million or 9 cents a share for the same period last year.